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EU Implements Bonus Caps

The European Parliament voted in a change to the EU’s Capital Requirements Directive which, from 2014, will cap bonuses for senior Asset Management staff at bank-owned Fund Management firms at 100 per cent of their base salary (or 200 per cent with shareholder approval).

An earlier vote, in June, has already capped bankers’ bonuses to double their base salary from 2015 – pushed through by the EU Council in the teeth of UK opposition. So this vote is simply widening the scope to include Fund Managers.

This could be seen as a welcome trend to a more ‘Japanese Model‘ of remuneration in Europe: ensuring greater equality by restricting earnings, and so smaller overall differences in pay.

Unfortunately, its effect will be limited by last week’s narrow European Parliament vote against against imposing similar restrictions on other Fund Managers which are not bank-owned. In practice, it is likely the bank-owned Fund Managers will just increase their base salaries to make up the difference.

Nevertheless, some EU member states, including the Netherlands and Italy, are likely to apply stringent pay caps across the entire financial services sector, including independent fund groups. Whereas others, such as Germany and (inevitably) the UK, are likely to limit ceilings on bonuses to bank-owned entities.

You can read more on the FT web site here (though you will need to register to see the article).